Advance tax nos show lingering pain

Advance tax numbers for the first quarter paint a picture of mixed corporate health in the country. While  private banks and defensive sectors such as pharmaceuticals and fast-moving consumer goods (FMCG) continue to report higher advance tax outgo, indicating managements’ strong earnings growth expectations, the manufacturing and consumer discretionary firms seem to be struggling.

Under income tax rules, corporates are required to submit at least 15% of the projected annual tax in advance by June 15 every fiscal.

Though these numbers do not have a direct bearing on corporate earnings growth, they are generally viewed as a cue for the ensuing quarterly results.

Private banks like Kotak Mahindra Bank and Yes Bank have paid 46.67% and 38.67% higher advance tax this quarter compared with the same quarter last fiscal.

Similarly, pharma companies like Lupin and Glenmark have paid 100% and 33.33% higher taxes this quarter.

FMCG major ITC, too, has paid 22.22% higher tax, indicating stable earnings growth expected this fiscal.

In the IT space, TCS, which is likely to benefit from improving global growth and rupee depreciation, has paid 40.63% higher tax.

However, the advance tax paid by the top two taxpayers – State Bank of India and Reliance Industries (RIL) – has risen marginally, by 2.47% and 1.43%, respectively. While SBI, the biggest public sector bank, has paid Rs 1,202 crore, RIL, the third-largest Indian company by market capitalisation, is learnt to have paid Rs 779 crore.

Asian Paints and Bajaj Auto, too, have shown lower growth in advance tax paid at 9.1% and 6.67%, respectively.

Recent economic data points like the index of industrial production (IIP) and purchasing managers’ index (PMI) point towards continued weakness. While the IIP grew 2.3% on-year in April, the manufacturing PMI too came in at a lower-than-expected 50.1 as against 51.

“The early reading for activities in May is not comforting. The May manufacturing PMI suggests continued weakness across the board. Manufacturing PMI fell to 50.1, led by weak readings of both the output (48.6 in May vs 50.2 in April) and new order (50.5 vs 52.3) components. The output component fell below the threshold 50 mark, a point not seen since the 2008/09 global financial crisis,” Taimur Baig and Kaushik Das, economists at Deutsche Bank, said in a note on Friday.